Kaiser Research Online Founder John Kaiser on Why Today's Precious Metals Bull Market is Different & a Couple of His Favorite Juniors (Part 2)

Below is Part 2 of my interview with Joh Kaiser. Click here for Part 1...

Gerardo Del Real: You had a research note on a company you and I are both familiar with – we actually went on a site visit together several years ago – Midas Gold (TSX: MAX)(OTC: MDRPF). That note was extremely well written, articulate, factual as always, and provided a good baseline, best case and dream scenario for the stock. You and I could not convince people to buy the stock at $0.30 and $0.35. Here it is trading at $1.63. It's breached $2.00 earlier this month and looks poised to head higher. Despite that, you articulated a pretty compelling case about why Midas Gold is likely headed higher in the near to mid-term. 

John Kaiser: They published a pre-feasibility study in December 2014. They used $1,325 or $1,350 as a base case price. The numbers they came up with, they weren't particularly great at $1,350. CapEx was almost a billion bucks. The worst thing was since 2015 gold hasn't spent much time above $1,300, period. So, the base case price was higher than the actual gold price, and so you kind of said, "Well, this thing's going nowhere.” And the market has priced it at that. 

Then we had the permitting issue. It was two years ago when we were on the site and we were on this permitting process. By the end of last year, since getting serious in 2016, they had spent $53 million US on the permitting cycle, out of $210 million total. Steven Quin has told me that by the time they have their permit at the end of next year, knock on wood, they'll have spent $70 million on this permitting process. But the result will be a company ready to produce 350,000 ounces of gold annually, plus what will become a very important antimony byproduct credit. 

These numbers have had to be adjusted a bit. I'm now using $1.3 billion rather than $1 billion CapEx. I run the old discounted cash flow model and I presented a graphic in it. It's on my website in the KRL summary report I published as a free thing. 

At around $2,000, the stock is worth between $5 and $8. At the base case price, it's $1.81 to $3.37. But that's kind of sketchy because it doesn't quite hit the development hurdles of the NPV having to be bigger than CapEx. Yet, it's still between $1.50 and $2.00. This market does not believe that this $1,900-$2,100 gold price range is here to stay. It's still pricing a stock like Midas as if it will never get a permit and gold will be back to $1,300-$1,400 in due course. That's what's exciting. The reason we saw a gap up from being as low as $0.265 during the March COVID market meltdown is people saw that there's finally light at the end of the tunnel for this permitting process. Hopefully the draft EIS gets filed this month like promised, and then that sets in motion a much more defined timeline for getting an actual permit. 

This stock is a better thing to watch with regard to sentiment because it will show you the degree that the market is taking seriously that $1,900, $2,000 is the new reality. If you go crazy and put in $3,000 as a price, we're talking at a stock that would be worth $10-$15 that is trading at a tenth of that today. 

Gerardo Del Real: Fascinating. You mentioned antimony, a critical metal. You've been one of the analysts at the forefront of critical metals for over a decade, and probably over two, if I'm not mistaken, John. We talked a bit about China and its push for domination. Frankly, we're starting to realize here in the US and around the world that developing a critical metals supply chain is not something that you can do in a year or two. We'd be lucky to do it by the end of the decade, if we get aggressive here in the US. 

You mentioned Midas for gold. How can people play the critical metals space? Is there a name or two that you like that provides exposure to maybe not just one metal, but maybe a couple in a jurisdiction that is in desperate need for what the company may have? 

John Kaiser: Well, the problem with critical metals, and that would be the rare earth stuff. Rare earth prices are at an even lower level than they were at in 2009 when Rare Earth Mania 1.0 kicked in. Rare Earth Mania 1.0 happened in a context of globalized trade, which China violated by increasing export quotas, by screwing with Japan over the Senkaku-Diaoyu Islands incident. Then all of the sudden, rare earth prices went up 10-20 fold, and we saw a boom in the juniors, and there was a big scramble to try to build deposits, make mines and rare earth deposits outside of China. But eventually China realized how stupid that was, and it all ended and prices are even lower today than they were back then. 

All these projects, they're still out there. One of the ones that I had followed was Leading Edge Materials (TSX-V: LEM)(OTC: LEMIF), which used to be called Tasman, which has the Norra Karr project. It is a large, heavy rare earth-enriched deposit. It's the second biggest in the world, and is not in a horrible remote location like the biggest, Strange Lake, which was also one of the big performers from that period. These deposits are not really worth developing at the prices we have today. 

But today we have a context of de-globalization and people are worried about the length of their supply chain. China dominates in rare earths and metals like antimony, graphite, a few others. They cheat by not enforcing their environmental regulations, by having these various tax rebates, things that favor domestic production. The purpose is to try and force downstream manufacturing into China. For example, permanent magnets that go into all kinds of applications, including electric vehicles, that's all made in China because there they have the rare earth supply right next door. Nobody has to worry about that supply being disrupted. 

But if we see this world start fragmenting into different trading economic units, then the rest of the world is going to have a problem, at least the ones not aligned with China. Although there's no economic argument for developing these projects in places like the United States and Canada and Europe, there is a case to be made that if a rupture occurs and supply no longer comes from China, then we will have a problem missing key critical inputs to various components that are manufactured around the world. 

To go back to the antimony, that is a boring metal used in lead acid batteries and as a flame retardant. It has applications for military stuff. 

Gerardo Del Real: It's boring unless you don't like being on fire. Right, John? 

John Kaiser: In fact, the reason that this Stibnite Project in Idaho of Midas is such an environmental disaster was that during World War II they mined the Stibnite deposits there. You may recall when we visited that project back in 2018, Steven Quin was saying, "Yeah, we have to do this water diversion tunnel so that the stream can go around the open pit. We've designed it so that it's going to go right past this very high-grade antimony vein, which we think has more antimony in a fairly concentrated place than in the entire three pits that we will eventually mine for gold with antimony as a byproduct.” 

So here is this emergency storehouse of antimony. There's no antimony coming out from China because they're keeping it all for themselves or only their allies. The United States will be able to get more than enough that it needs for itself. It'll be able to supply its allies. 

That's why a stock like Midas Gold is to me an absolute no-brainer. Because you're not only betting on the world coming to an end with a higher gold price and you're going to make good dough along the way, but the antimony will be part of what will hedge against other bad things happening in the way the world operates. 

If you want to hedge, companies like Leading Edge Materials, which has a graphite deposit in Sweden and the Norra Karr deposit in Sweden – although Norra Karr, whilst it can't really compete against the China price now, people are starting to think, "How can the world be reorganized?" You've heard of this ESG concept right now, which normally is about environment, sustainability, government and so on. It's now also including strategic supply chain consideration. This old-fashioned, optimize, textbook stuff where you make everything just in time, and cut costs to maximize profits, all of that's undergoing a re-think. That's going to go into some of these critical metal companies that are really don't represent good economic value right now, but we're in the midst of a sea change which will create economic value for these companies. 

Gerardo Del Real: Just to be clear with rare earths, they may not make economic sense right now, but the contribution strategically that they make is what makes them critical, pun intended. Correct, John? 

John Kaiser: Yeah. It's not like your car is made entirely of a critical metal. They're called critical because they are a small input in the final product, but without that input, the product doesn't work very well. That makes it critical. It's a fairly broad space. The United States has 35 critical metals on its list. These are ones where the United States does not produce anything. They even have beryllium on the list. How can that be? United States is the world's biggest producer of beryllium, with the Spor Mountain project that Materion operates in Utah. When you drill down deep enough from that bertrandite ore, you cannot recover the high-purity beryllium needed by the military for its hyper-specialized applications. This is why they import the semi-precious beryl from places like Colombia and all these other parts of the world, and why it is on the critical metals list. 

One of the companies that I cover, it's been involved in scandium, which is not critical because nobody actually uses it because it hasn't been sufficient supply for anybody to dare making it part of their aluminum alloy components. These guys have figured out a way on how these copper oxide operations in the United States, of which there are about 12 of them, 6 of them owned by Freeport, well, they can set up a unit on the raffinate waste that gets pumped back onto the pile and pull out all these bizarre metals that are in there that happened to get dissolved.

The SX/EW guys only recover the copper component, the rest gets lost. They've tried in the past to get this stuff out, but it's too complicated. It really takes a chemist to figure this out. But there's been some changes in available technology which makes this available. So these guys right now are trying to get a deal with Freeport or anybody with a copper oxide operation to set this up and recover metals like cobalt, scandium, possibly beryllium, nickel even. It'll be able to pull it out in a high-purity form. 

I mean, Cobalt right now with ESG. If you're going to be Tesla or somebody like that and have cobalt in your battery, can you truly say that this doesn't come from the Congo and those parts of the Congo where they use slave labor and that to mine the stuff, and in any case, wreck the environment? Well, what if you have a domestic source for your cobalt? Apple for all its iPhones could say, "All our cobalt comes from these American oxide mines via this company Scandium International Mining Corp., which is doing an ESG thing by recovering something on which energy is wasted dissolving, but that normally goes back into the dirt pile, where it stays when all the copper has been sucked out of it.”

This is kind of a feel-good thing. You're guaranteed that no bad conflict mineral thing has ever intersected with it. There's lots of opportunities like this emerging in this whole critical metal space that taps into not just the geopolitical supply problem, because cobalt comes from Congo, which is not China. But in terms of how clean is this critical input to your product which you're trying to market as something with a low carbon footprint that doesn't have any environmental or human rights degradation in its tail. 

Gerardo Del Real: John, we've chatted for half an hour. We could probably go another half hour and not even blink. You mentioned Midas, you mentioned Leading Edge Materials. I think that's a good, good overview of what's going on in the space. We should absolutely do this again soon. 

Before I let you go, can you please provide people with how to get in touch with you and go to your site? Because there's a wealth of research and information that can benefit anyone considering trying to make money in this space and do diligence. You do some top-notch research, and I think it'd be a service to people if they had the website. What's the link to that? 

John Kaiser: Gerardo, the website's KaiserResearch.com. What normally costs $450 US per year, I've now got a special. $275, it gives you everything to the end of this year. It's not as cheap on a per month basis as the annual membership, but the next five months are going to be the most lucrative part of this awakening bull market. 

Gerardo Del Real: We'll make sure to put a link up. John, let's do this again soon. Thank you. 

John Kaiser: For sure. Thank you, Gerardo.